Second only to the sole proprietorship, the partnership is among the oldest of business entities to develop.?

Question

By the time of the development and implementation of the English Common Law in the 16th Century, the law of business partnerships was already highly developed. This was the case despite the fact that a majority of partnership business owners were illiterate.

In businesses that involve numerous members of the same family, the preferred business choice of conduct is the partnership. What advantages may occur for the family members by conducting business in this form? Can you think of any potential problems that may occur when family members conduct business in the form of a partnership? Would the other business entities of sole proprietorship or incorporation fair any better?

Answer 1

One big advantage of a general partnership is that you don't have to register with your state and pay an often hefty fee, as you do to establish a corporation or limited liability company. And because a general partnership is normally a " pass through" tax entity (the partners, not the partnership, are taxed unless you specifically elect to be taxed like a corporation) filing income tax returns is easy. Unlike a regular corporation, there is no need to file separate tax returns for the corporate entity and its owners. But given that the business-related acts of one partner legally bind all others, it is essential that you go into business with a partner or partners you completely trust. It is also essential that you prepare a written partnership agreement establishing, among other things, each partner's share of profits or losses, day-to-day duties and what happens if one partner dies or retires.

A major disadvantage of doing business as a general partnership is that all partners are personally liable for business debts and liabilities (for example, a judgment in a lawsuit). While it's true that a good insurance policy can do much to reduce lawsuit worries and that many small, savvy businesses don't have debt problems, it's also true that businesses which face significant risks in either of these areas should probably organize themselves as a corporation or LLC.